Last Updated on May 27, 2021 at 7:30 pm
Govt of India (GOI) has announced the sale (Re-issue) of 6.80% Government bonds maturing in 2060. Retail investors can participate in this sale via the NSEgoBid platform on 20th and 21st Oct 2020 (10 am to 5 pm). The auction will be conducted by the RBI on 23rd Oct.
Details of the 6.8% GOI Bond: 680GS2060C – GS (6.80% GS 2060). Price per Security Rs. 107.00. Min Bid & Multiples Rs. 10,000.00 and Max Bid 2.00 Crores. This bond was issued on 31-Aug-2020 and will mature on 15-Dec-2060. The interest will be paid twice a year (3.4% each) in Feb and Aug.
What investors should consider before buying: These are GOI bonds and not “RBI bonds”. Cumulative payout is not possible. You will get an interest rate of 6.8% (before tax). However since each bond is being sold at a premium of Rs. 7, the effective yield (approx) is (6.8/107) = 6.36%. This is a better deal than last weeks offering: 7.16% interest rate GOI 2050 bonds on sale 13-14th Oct 2020
Investors considering this bond versus an annuity must ask (among other questions) if this effective yield is a better deal. For example, if you are 40+, want a pension for life, LIC will pay you more (higher, the age, higher the rate) but will keep the principal.
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If you want the principal returned to the nominee on death LIC Jeevan Akshay-VII will offer a lower rate (age-dependent) of 5.3% to 5.6%. Interest from both GOI bonds and insurance products are taxable as per slab. These bonds will pay interest for 30 years (may or may not a person’s lifetime), will always return the principal and there is no need for a life certificate to provided each year. As with every choice, it is not about which is better, it is about which is better for us.
What investors should know before buying: NSEgoBid is a buying-only platform. You can attempt to sell these only via a depository participant who is also an NSE trading member. Therefore please find out more about this form your Demat provider before buying. Kindly consult a SEBI registered fee-only advisor if you need advice.
This is a 30-year bond. So it should only be used if you want regular income over that period. Make sure you have a nominee for the demat account and suitable will. In general, it is better to assume that once purchased it would be hard to sell these bonds as retail participation would be less. So do not buy unless you intend to hold until death and transmission thereafter.
We had discussed more who should use these bonds before: Can I get a pension using GOI bonds instead of LIC pension? If you want regular monthly income with not much of funds invested elsewhere then these bond are unsuitable for you.
Caveats: (1) you may bid but not get allotment; (2) future auctions may be (or may not be) for bonds that provide higher/lower interest rate: see list of outstanding GOI bonds
Other securities available for bidding bet Oct 20th and 21st 2020:
- 509GS2022M – GS (5.09% GS 2022)
- 522GS2025H – GS (5.22% GS 2025)
- 577GS2030E – GS (5.77% GS 2030)